Amaeshi, K., Osuji, O. & Nnodim, P.

2008, 'Corporate Social Responsibility in Supply

Chains of Global Brands: A Boundaryless Responsibility? Clarifications, Exceptions
and Implications', Journal of Business Ethics, vol. 81, no. 1, pp. 223-234.

Corporate Social Responsibility in Supply Chains of Global Brands: A

Boundaryless Responsibility? Clarifications, exceptions and implications

Abstract

Corporate social responsibility (CSR) is increasingly becoming a popular business

concept in developed economies. As typical of other business concepts, it is on its

way to globalization through practices and structures of the globalized capitalist

world order, typified in Multinational Corporations (MNCs). However, CSR often sits

uncomfortably in this capitalist world order, as MNCs are often challenged by the

global reach of their supply chains and the possible irresponsible practices inherent

along these chains. The possibility of irresponsible practices puts global firms under

pressure to protect their brands even if it means assuming responsibilities for the

practices of their suppliers. Pressure groups understand this burden on firms and try

to take advantage of the situation. This paper seeks to challenge the often taken-for-

granted-assumption that firms should be accountable for the practices of their

suppliers by espousing the moral (and sometimes legal) underpinnings of the

concept of responsibility. Except where corporate control and or corporate grouping

exist, it identifies the use of power as a critical factor to be considered in allocating

responsibility in firm-supplier relationship; and suggests that the more powerful in

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this relationship has a responsibility to exert some moral influence on the weaker

party. The paper highlights the use of code of conducts, corporate culture, anti-

pressure group campaigns, personnel training and value reorientation as possible

sources of wielding positive moral influence along supply chains.

Key words: Responsibility, firm-supplier relationship, purchasing ethics, responsible

supply chain management, corporate control and corporate group

Introduction

The stakeholder theory of corporate social responsibility (CSR) emphasises a broad

set of social responsibilities for business. Stakeholders, as used in this theory, refer

to those individuals or groups who may affect or are affected by the organisation

(Freeman, 1984 and 1994; Clarkson, 1995). They include a wide variety of interests,

and as suggested by Mullins (2002), may be grouped under six main headings:

employees, shareholders, consumers, government, community and the environment,

as well as groups such as suppliers, trade unions, business associates and even

competitors. In this regard, CSR can be broadly defined as an organisation‘s

commitment to operate in an economically and environmentally sustainable manner

while recognising the interests of its stakeholders1.

In line with this broader definition of CSR, global brands like Nike, GAP, Adidas and

McDonalds are often under intense pressure from groups working for responsible

1
http://www.cbsr.bc.ca/what_is_csr/index.cfm visited on April 8, 2003

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supply chain management. Much of this pressure is channelled through the supply

chain, since the pressure groups sometimes find it difficult to reach the global brands

directly. To this end, they rely on indirect tactics such as targeting the sourcing

activities of these brands and their seeming exploitation of cheap labour conditions in

developing countries. These attacks, which have been quite successful in recent

times, hack on the reputation of these firms (e.g. Nike‘s case2). They engender

negative public sentiments and invariably resentments towards the global brands

following ―irresponsible‖ behaviours along their supply chain. These negative

perceptions of firms persist, irrespective of the locus of the ―guilty‖ suppliers on the

supply chain spectrum of the primary purchasing firm. This image tends to put firms

under pressure to bear indefinite responsibilities for their wide and long supplier

networks. Firms, therefore, do everything possible to protect their brands – including

accounting for the seeming irresponsible behaviours of their suppliers, as shown in

the current wave of social reports across industries.

There seems to be widespread agreement on some form of corporate responsibility

for social issues. Nevertheless, the critical question is how to define or limit the

scope of such responsibility within the context of the operations of MNCs. The

enormity of corporate multinational power makes this an urgent and important task.

The general conception of corporate social responsibility is extra-legal (McWilliams

and Siegel 2001). Apart from corporate social responsibility reports, firms including

MNCs now appear to adhere to one code of conduct or the other. These codes are

usually voluntary initiatives by the firms, either alone or in association with other

firms in the same or similar industry. Sometimes, other participants such as pressure

2
Nike and its subcontractors are often accused of inhumane labour and business practices in Asian factories
where Nike products are made. See: Kasky v. Nike and its Implications for CSR
http://www.csrpolicies.org/CSRResources/CSRBriefs/csrbriefs_nike.html visited May 26, 2004

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groups and civil societies make input to the contents of such codes. However, most

corporate codes of conduct have not properly addressed the issue of defining the

limit of corporate responsibility for the activities of another corporation. For instance,

The Apparel Industry Code of Conduct for US-based clothing and accessories

corporations imposes a ―duty‖ on such enterprises to ensure compliance with the

code by their contractors, sub-contractors, suppliers and licensees.3 This is clearly a

nebulous obligation. Does this ―duty‖ extend to all the levels and actors in the supply

chain, irrespective of proximity or remoteness from the firm or MNC? Can the ―duty‖

be applied to a situation where the MNC is not even in a position to control or

influence a ―member‖ of the supply chain? Is unlimited exposure to social

responsibility a good idea for the business environment? How does social

responsibility fit in with the concepts of corporate legal personality and independent

existence of corporations? Is reconciliation possible?

One of the negative consequences of this pressure approach towards CSR adopted

by pressure groups is the tendency to (inadvertently) promote the false notion that

CSR practice is restricted only to global big firms and brands. Since most of the firms

along the supply chains are likely to be Small and Medium scale Enterprises (SMEs),

this approach also exhibits the tendency of giving an inaccurate impression that

SMEs are somehow shielded from engaging in CSR practices, which runs against

the ethos of the CSR movement. In the contrary, there is a rising call for SMEs to

participate in both CSR discourse and practice as well (Petts, 1998; Spence, 1999;

Sarbutts, 2003). This is where and why we think that arguing for and highlighting the

limits of CSR practices along supply chains of global brands could be a way to curtail

3
Code of Labour Practices for the Apparel Industry including Footwear, available at:
http://www.cleanclothes.org/codes/ccccode.htm [visited August 8, 2006]

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the excesses of pressure groups and their antics, while urging for SMEs to be

equally socially responsible.

This paper, therefore, examines if firms should be responsible for the practices of

their suppliers, the extent of this responsibility and how they could effectively

translate such responsibilities, if any, into practice. The paper starts by situating firm-

supplier relationships within the broader context of firm buying behaviour; and from

that context evaluates the responsibilities of firms as ‗customers‘ to their suppliers.

Quite often, the fact that purchasing firms are customers is ignored in debates

around responsible supply chain management. The paper does not focus on such

ethical issues in purchasing as: deception, bribery, price rigging, unsafe products

and public safety (Wood, 1996:185), since these are likely to arise from the internal

environment of the purchasing firm and not necessarily from its relationship with the

suppliers. In addition, it does not consider the intricacies of the economic dynamics

characteristic of firm-supplier relationships. It focuses solely on espousing the moral

(and sometimes legal) connotations of the concept of responsibility and what it

means to be held responsible while relating these to firm-supplier relationships. In

the main, the paper attempts to set limits to responsibility in a supplier relationship by

introducing the concepts of corporate control and corporate grouping as critical

factors.

Responsibility as accountability: meaning, clarifications and exceptions

From ancient times, philosophers have struggled to unravel the wealth of meanings

embedded in the term ‗responsibility‘ or the expression ‗to be held responsible‘. The

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term and the expression are both associated with the concept of morality. This is not

surprising, since the claim of morally responsible agents is one of the distinguishing

characteristics of human rationality (Eshleman, 2002). A comprehensive account of

the philosophy of responsibility, thus, encapsulates nuances of moral responsibility,

the status of a moral agent and the conditions under which the actions of a moral

agent may be considered responsible or irresponsible.

In the history of western philosophy, substantive reflections on the notion of moral

responsibility date back to the ancient Greek philosophers, especially Aristotle. In

Nichomachean Ethics (BKIII), Aristotle considers the criteria for moral agency to

include the capacity for rational choice and deliberation. A responsible act is a

voluntary act. Therefore, an agent is praiseworthy or blameworthy depending on his

or her voluntary acts and disposition of character traits. For an act to qualify as a

voluntary act, the agent must be both in full control of his or her action and must be

rationally cognizant of the consequences of his or her action. Involuntary acts are

thus those acts for which the agent should not be held responsible, either because

they are executed out of ignorance, external coercion or to avoid a greater evil (Cahn

2002). However, contemporary western moral philosophy embodies varying and

often conflicting notions of moral responsibility.

The Kantian idea of moral responsibility also stems from the conception of person as

a moral agent. A moral agent or person is not only rational or capable of rational

choice, but is one whose action is informed by a sense of duty. The sense of duty is

codified in universal law principles, which Kant referred to as categorical imperatives.

Therefore, a responsible or right action is not necessarily one that maximizes utility,

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but one that follows moral principles, which are capable of becoming universal moral

laws (Cahn 2002:752). Hence, for neo-Kantians and some other deontologists, a

responsible or good moral agent ought to act in accordance with good moral

principles, irrespective of the consequences of such actions. The assumption here is

that good moral principles lead to actions that invariably bring about good

consequences. For consequentialists, however, a good or responsible action is one

that brings about good consequences or maximizes utility (in the case of

utilitarianism). Hence, the morality of an act is not dependent on moral principles

prior to the action, but on the actual outcome of a particular act4.

In another sense, to be responsible may involve some sort of cause and effect

relationship (e.g. gravity responsible for the fall of objects in space) or carry some

sort of duties and or obligations which could be legal and moral (e.g. an employed

school teacher‘s responsibility to teach). Since ―…to be morally [and legally]

responsible for something, say an action, is to be worthy of a particular kind of

reaction – praise, blame [punishment] or something akin to these – for having

performed it‖ (Eshleman, 2002:1), the latter applies more to our arguments in this

paper than the former. Dwelling on the meaning of responsibility, the philosopher

John Lucas (1993) wrote:

Etymologically, to be responsible is to be answerable—it comes

from the Latin respondeo, I answer, or the French répondre, as in

4
Deontology is an ethical theory that stems from the notion of duty. It judges the rightness or
wrongness of an act primarily from the point of view of a person‘s duties and the rights of others. This
form of ethics separates the rightness or wrongness of a decision from its outcomes. In other words,
an act is good, if it follows well-established moral principles. Hence, an agent‘s action can be wrong
even if it results in the best possible outcome. Consequentialism, on the contrary, stresses that the
moral value of an act is dependent upon the value of its consequences. An act is good, if the
resulting consequences are also good. (See also Blackburn, 1996, 77, 100)

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 RSVP. I can equally well say that I am answerable for an action or

accountable for it. And if I am to answer, I must answer a question;

the question is 'Why did you do it?' and in answering that question,

I give an account [...] of my action. So the central core of the

concept of responsibility is that I can be asked the question 'Why

did you do it?' and be obliged to give an answer.

In a similar effort, Craig (2000) defines ‗responsibility‘ as follows:

To be responsible for something is to be answerable for it. We have

prospective responsibilities, things it is up to us to attend to: these

may attach to particular roles (the responsibilities of, for instance,

parents or doctors), or the responsibilities we have as moral

agents, or as human beings. We have retrospective responsibilities,

for what we have done or failed to do, for the effects of our actions

or omissions. Such responsibilities are often (but not always) moral

or legal responsibilities.

However, can one be answerable for an action that lies beyond one‘s control? What if

one‘s psychological and physical conditions do not permit one to give an account of

one‘s actions, who should be accountable in this case? These questions raise the

fundamental challenges of fatalism and determinism in relation to the concept of

―responsibility‖ and are beyond the scope of this paper.

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Responsibility in the sense used in this paper is closely related to the concept of

accountability. Drawing from the works of other academics (e.g. Gray et al. 1987;

Williams 1987; Roberts and Scapens, 1985), Swift (2001:17) characterizes

accountability in both broad and narrow sense. Broadly speaking, he describes

accountability as "... the requirement or duty to provide an account or justification for

one's actions to whomever one is answerable". In a narrow sense, Swift talks of

accountability as "... being pertinent to contractual arrangements only,... where

accountability is not contractually bound there can be no act of accountability".

Furthermore, borrowing from a later work of Gray et al (1997), Swift notes that "...

essentially accountability is about the provision of information between two parties

where the one is accountable, explains or justifies actions to the one to whom the

account is owed". This form of accountability underlies principal-agent relationship,

which is central to the firm as an economic and legal entity. Despite the presence of

semantic variations within the notion of accountability, the duty to account appears to

convey a central meaning. The duty to account connotes institution of rights and

obligations and as such, should be able to hurt if violated (Owen et al., 2000).

In the same line of thought, Gray et al. (1988) explain that a firm's accountability to

the wider society is inherent in a social contract between the society and the

business group. The appropriation of the social contract theory here stems from the

hypothesis that business derives its existence from the society. Although traditional

social contract theories are hypothetical constructs, nevertheless, they are normative

reference points in the justification of the legal use of coercive state or societal power

on individual citizens and corporations. This idea of accountability inherent in the

social contract is realized when market forces punish or reward corporate behaviour

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(Swift, 2001; Donaldson and Preston, 1995). In this regard, Korten (2004) argues

that the market by necessity needs information to be effective. Hence, corporations

have the moral duty to produce necessary and complete information needed by the

market to mete out punishment or dispense reward. This will constitute accountability

to the market, which cannot be achieved through self-regulation.

The increasing demand for accountability from firms also extends to the activities

within their supply chain (Mamic, 2005). This extension of responsibility, in itself, is

questionable: Is the supply chain of a firm intrinsically part of the firm? If it is, what

becomes of the independence of the individual firms operating within a primary firm‘s

supply chain? If it is not, is it appropriate to expect firms to account for actions

outside their legal boundaries, thereby exposing them to ―unlimited‖ responsibility for

their supply chains? Why should one firm bear responsibilities for the practices of

another firm? Are ‗consumers‘ responsible for the practices of the firms (e.g.

supermarkets) they buy from? Are suppliers (in our case the supermarkets) not

pressured to be responsible and ethical to the consumers at the micro-level

(individual buying behaviour)? These questions assume more challenging postures,

especially in cases where relationships between firms and the suppliers are

fundamentally economic and at arms length (Sako, 1992). As such, we see the

apparent ascription of unlimited responsibility to account for suppliers‘ practices on

the purchasing firms as inappropriate because it undermines corporate autonomy

and independence.

In most legal systems, a corporation is recognised as a legal person. The principle of

independent legal existence of a corporation recognises that a corporation is distinct

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from its members or shareholders. A corporation is regarded as neither an arm nor

an extension of its members or shareholders. In Dartmouth College v Woodward a

corporation was described as ―an artificial being, invisible, intangible, and existing

only in contemplation of law‖. Corporate personality is now an established principle

in most legal systems. Various decisions of the United States Supreme Court, for

instance, Santa Clara County v Southern P.R. Co (1886), First National Bank v

Belotti (1978), consistently confirmed the legal personality of corporations.

Furthermore, the twin principles of corporate personality and separate legal

existence of a corporation are the ―…cornerstone of English company law [and] a

fundamental rule‖ (McGee et al., 2005:99). An important component of these twin

principles is the principle of limited liability under which the liability of the

shareholders or members of a corporation is limited only to the value of their

shareholding (Salomon v Salomon & Co.: 1897). In other words, it could be argued

that the supply chain is not an extension of the firm and as such, the purchasing firm

should not bear any responsibilities for the practices of its suppliers. Suppliers, as

firms, should bear responsibility for their actions. However, these are the general

legal rules. In practice, there are exceptions to the general rules - for example, where

there are some sorts of integrations – i.e. vertical or horizontal and even network –

between the purchasing and supplying firms. To substantiate our argument for these

exceptions, we draw insights from two related concepts in law – (a) control as

limitation of corporate liability and (b) corporate group. These two concepts are,

practically, exceptions to the twin principles of corporate legal personality and

separate existence of a corporation.

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Control

Relevant statutes usually contain their definitions of control (e.g. section 231 of the

UK Employment Rights Act, 1996). Corporate control may exist in various forms. For

example, where the management of one corporation can be appointed or removed

by the management of another corporation, control appears to be in existence. In a

situation, where a corporation has no assets at all or has no assets within its area of

operation and relies on the assets of the other corporation to do business, or where

a corporation engaged in a ―risky‖ venture sells its assets to a corporation in the

same group (for example, Patrick Case: Spender, 2000: 38-43), corporate control

may exist here too. The Australian Patrick Case illustrates this point. In that case,

four members of a stevedoring group sold their business and other assets to another

member of the group. The only asset left in each of the selling companies was a

contract to supply labour to an upstream company in the same group. The upstream

company later terminated this contract for supply of labour. The termination of that

contract directly resulted in the insolvency of the four companies.

However, prior to the group restructuring, each member of the group employed its

own workers, owned and operated its own stevedoring business. It was later pointed

out that the main reason for the restructuring exercise was to ―facilitate the

termination of the employees‘ employment‖ (Patrick Stevedores Operations No 2 Pty

Ltd v Maritime Union of Australia (1998): 673; Spender, 2000:40). One other

important result of the restructuring was that the same individual became the sole

director of each of the four labour-supply companies. The applicable Australian

Corporation Law, s.221 permitted sole directorship (Spender, 2000: 40). The overall

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effect was that ―[a]lthough the legal entities who contracted with the employees did

not change, the nature of the business and the viability of those companies had

changed fundamentally‖ (Spender, 2000: 41). The workers‘ union instituted an action

against the corporate group (Maritime Union of Australia v Patrick Stevedores

Operations No. 1 Pty Ltd (1998); Patrick Stevedores Operations No 2 Pty Ltd v

Maritime Union of Australia (1998)). An interlocutory injunction was granted against

the members of the corporate group by both the court of first instance and the

appellate court compelling the companies to treat the four labour-supply companies

as their sole suppliers of labour. The companies were also required to treat the

labour supply agreements as subsisting and valid (Spender, 2000: 55). However,

the litigation ended at the interlocutory stage when the parties reached settlement.

The terms of settlement included the winding-up of the four labour-supply

companies; the transfer of the workers‘ employment to the group holding company;

and the termination of the labour supply contracts (Spender: 55). In England today,

it would not be possible for the kind of restructuring carried out by the Patrick group

to dispense with the services of the employees of the four associated companies.

The introduction of the concept of ―associated employer‖ by section 231 of the

Employment Rights Act 1996 prevents such actions (Milman, 1999: 237). According

to that statutory provision, two employers are associated if ―one is a company of

which the other (directly or indirectly) has control, or both are companies of which a

third person (directly or indirectly) has control‖. This statutory provision is a clear

case of disregard of the principle of independent existence of corporations.

Examples of such control may also exist where the businesses belong to the same

corporate group or there is a parent-subsidiary relationship. In Bowoto v Chevron the

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claimants sued Chevron (now ChevronTexaco) for human rights abuses and for

issuing false and misleading information on its practices in Nigeria under a military

regime. In March 2004, the US (federal) District Court in San Francisco, California,

rejected Chevron‘s arguments that (1) Nigeria is the proper forum for the trial of the

case, (2) the alleged human rights abuses did not violate international law, and (3)

Chevron could not be held responsible for the actions of its Nigerian subsidiary. In

effect, in Bowoto v Chevron the court ruled that separate personality of a subsidiary

corporation does not constitute a bar to holding a corporation accountable for the

actions of their overseas subsidiaries. The relevant control may also exist where, as

in Cape Industries v Adams (1990), the corporation knew of the ―risks‖ but took steps

to establish an asset-free undertaking for the ―risky‖ business. In 1968, Cape

Industries closed its main UK factory as a result of the concerns for and the

prevalence of asbestos related disease, although its South African operations

continued in such unsafe environment until 1979 (Meeran, 2000: 263). The relevant

South African and Namibian labour compensation laws provided only ―a system of

paltry compensation‖ and also precluded ―claims against the employer‖ (Meeran,

2000: 252).

Limitation of corporate liability is an issue of ―compelling theoretical interest and

practical importance‖ (Hohfeld, 1909: 320). The exception to our general proposition

of limiting responsibility to direct suppliers is where there is evidence of actual control

by one corporation over another in the supply-chain irrespective of their positions on

the chain. Control may mean either ―checking and supervising‖ or ―determining-the-

outcome‖ (Vagts, 1980: 324). The first is control at the lower level while the second

is a higher-level control. In this paper, we adopt the higher level of control as the

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relevant factor. First, the level of ―determining-the-outcome‖ requires less inquiry of

details than ―checking‖ or ―supervising‖. Secondly, the usual relationship of firms is at

that higher level, although it is possible for a firm to be involved in the details of the

operations of another firm.

―Determining-the-outcome‖ is connected to the setting and monitoring of a general

policy framework. Being in a position to set or monitor such policies is as good as

actually setting or monitoring them. Where this control exists, the indication is that

the relationship between the corporations is not a normal ―arms-length‖ business

relationship. Using control as the relevant factor for imposing responsibility has the

distinct advantage of ensuring that a corporation does not avoid responsibility where

such responsibility should be assumed. Otherwise, ‗careful‘ supply-chain

organisation may be capable of completely defeating the aims of CSR. Nothing

prevents a corporation from establishing a supply-chain relationship, which ensures

that the ―risky‖ venture is carried out by an enterprise even lower than the direct

supplier.

Corporate Groups

Corporations are generally permitted to own shares in other corporations. Corporate

groups exist as a result of the ownership of shares by corporations in other

corporations. The allocation of responsibility is one of the most controversial aspects

of the law relating to corporate groups (Milma, 1999: 224). There is a growing trend

towards a departure from the strict application of the principles of corporate

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personality and separate corporate existence in the context of corporate groups. This

approach appears to have influenced some English statutory provisions on corporate

groups (Littlewoods Mail Order Stores v Inland Revenue Commissioners (1969):

1241) such as consolidated accounts (Companies Act, 1985, s.227), disclosure

requirements (Companies Act, 1985, ss.231, 232) and business report (Companies

Act 1985 s.234 (as amended by Part 1 of Company (Audit Investigations and

Community Enterprise) Act 2004). Why should this legal approach not be extended

to corporate social responsibility?

We advocate a single enterprise view of corporate groups. Single enterprise is an

approach that treats the members of a corporate group as the same corporation.

This approach reflects the actual and commercial reality of and in the operations of

corporate groups. A suggestion has rightly been made for responsibility where ―there

is sufficient involvement in, control over and knowledge of the subsidiary operations‖

(Meeran, 2000: 261). It appears that the trend is for corporations to be willing to

argue in favour of separate companies as constituting a single economic unit

whenever this may confer a perceived benefit, including right of action (an argument

that was rejected by the court in The Albazero (1977)), profit or tax or other fiscal

incentives (for instance, in ICI v Colmer (1998) and Bosal Holding BV (2003).

However, there appears to be a change in corporate attitude when social

responsibility is in issue. For instance, in Bhopal Case (1986, 1987), the defendant

parent company disputed the argument of both the Indian government and the

claimants that the parent was liable for the environmental disaster in issue

regardless of the apparent legal separation between the parent and its Indian

subsidiary.

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It is important to recognize corporate groups as ―a form of business organisation sui

generic‖ (Milman, 2000: 219). One should not be oblivious of the fact that some

corporations are ―mere instrumentalities‖ (Amoco Cadiz (1984): 338) of other

enterprises. There is no need to insist on the separate legal existence of the

individual corporations in a corporate group. Such insistence on independent

existence of the individual companies is certainly ―not a true reflection of the

economic reality [since] very often such groups are so intertwined with each other‘s

affairs as to amount to little more than departments of one organisation or entity‖

(McGee, Williams and Scanlan, 2005: 105). Artificialities are encouraged where the

legal principle of separate existence is applied to corporate groups. For example, it is

definitely not ―the most honest way‖ of doing business where there is ―the creation or

purchase of a subsidiary with minimal liability which will operate with the parent‘s

funds and on the parent‘s directions but not expose the parent to liability‖ (Atlas

Maritime Co. v Avalon Maritime Ltd (No 1), (1991): 779). In most cases of parent-

subsidiary relationship, evidence shows that ―subsidiaries are bound hand and foot

to the parent company and must do just what the parent company says‖( DHN Food

Distributors Ltd v London Borough of Tower Hamlets, (1976): 860). The fact is that

most historical accounts, (for instance, Hovekamp, 1991: 49-54) of the principle of

separate existence of corporations strongly indicate that the principle was designed

for the protection and encouragement of the individual shareholder, and not the

corporate shareholder. In our view, therefore, firms in a dominant or controlling

position in a corporate group should also be responsible for the activities of other

firms in the group.

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Power and Influence

A further probing into the different scenarios presented above resonate with what

comes across as a common assumption that the more powerful in an economic

relationship should bear the responsibilities of the weaker party (Reed, 1999). On

one hand, firms are readily perceived as more powerful than their suppliers, and

consequently expected to assume responsibility for the practices of their suppliers.

On the other hand, it is very plausible to conjecture that firms may also exert undue

pressures on their suppliers thereby forcing them to conform to their low cost targets

at the expense of responsible business practices. As such, a firm‘s exercise of power

over the supplier may have either a deontological or consequentialist outlook. Firms

that enforce principles of responsible business practice from the standpoint of moral

duty do so from a deontological perspective, while those that implement such

principles in other to maximize profit do so from a consequentialist view point. Using

the example of the suppliers of UK clothing retailers, Jones and Pollitt (1998) show

that an opportunistic abuse of power by retailers can lead to reductions in quality,

lack of investment, lack of innovation, and even job loses and industry decline

(Crane and Matten, 2004).

Considering the enormity of corporate multinational power, encouraging responsible

practices within their business networks would still count as a moral minimum. Since

firms (especially multinational corporations) wield a lot of power – given the vast

resources available at their disposal, it is morally justifiable and more sensible to

expect them to use their powers in a way that encourages suppliers to adhere to

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some reasonable standards of responsible practices. However, the responsible use

of power applies to both the firm and the supplier given their relative power positions

in the market (i.e. the powerful supplier – monopoly; and the powerful buyer -

monopsony). But this influence, we suggest, should be limited to the interface

between the firms and their immediate suppliers. Our primary assumption here is

that through ripple effects, the influence of the powerful firm will filter down the entire

spectrum of the supply chain.

Translating responsibility in supply chains into practice: some managerial

suggestions

The translation of responsibility in supply chains into practice will involve some sort

of change management – as the status quo will be altered. Covey (1992) in his

seminal book: The 7 Habits of Highly Effective People suggests that it is essential to

make the distinction between circle of control and circle of influence in any change

management initiative. The circle of control relates to things we have complete

control over, while circle of influence relates to things we can seek to influence, but

do not have total control over. Following our position that purchasing firms should not

bear ―indefinite‖ responsibilities for the actions of the suppliers and that firms in

position of power should seek to positively, influence the practices of their suppliers,

it implies that firms can only act within their circle of influence while dealing with their

suppliers. Some of the possible ways of exerting this influence may include amongst

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others: corporate codes of conduct/standards, corporate culture, anti-pressure group

campaigns5 and personnel development.

The codes of conduct/ standards will state in clear terms the value orientation of

the purchasing firm and its expectations from the suppliers. This can be mapped out

in consultation with the direct suppliers or as an agreement between firms and new

suppliers at the point of engagement. This form of consultation should be free from

any form of stakeholder imperialism - a relationship whereby the stakeholders are

only accorded instrumental values, solely for economic gains. Stakeholder

imperialism does not give a voice to stakeholders and is characterised by unilateral

communication (Crane and Livesey, 2003) and unequal balance of power. It is not

genuine; it is selfish and firms involve in it because ―… it makes good business

sense … (and)… helps companies to mitigate risk, protect corporate brand, and gain

competitive advantage… (Deloitte Touche Tohmatsu, 2002:2 cited in Brown and

Fraser, 2004). Rather the consultation should be characterised by genuine

intentions, dialogue, engagement, trust and fairness (Phillips, 1997; Swift, 2001).

Firms engaging in this form of consultation understand that stakeholder-ship entails

some form of intrinsic value. They enter into such a relationship for some ends that

transcend the mere calculation and maximization of profits. It will then be the

responsibilities of these immediate suppliers to pass on to their subsequent suppliers

down the supply chain, the culture of responsible business practice.

The principal purchasing firm can as well institute a process that asks for periodic

submission of ethical audit reports from the suppliers as part of the engagement and

5
The anti-pressure group campaign option is basically geared towards the global firms reclaiming power from the
pressure groups and shifting public attention to the responsibilities of firms within their supply chains, and the
need for them to be held accountable for their practices as independent firms with legal and moral rights/duties.

Page 20 of 32
ensure that any supplier found guilty either by the auditors and, or by the public,

would be named and shamed, which might even lead to the severance of

relationship. In the same line of thought, purchasing firms can set up some sort of

rewards for suppliers that continually meet the standards. Commenting on the

relevance of the code of conduct in socially responsible supply chain management,

Graafland (2002:283) gives an account of how it is used in C&A6:

The code requires that suppliers respect the ethical standards of

C&A in the context of their particular culture. Suppliers should have

fair and honest dealings with all others with whom they do

business, including employees, sub-contractors and other third

parties. In addition to this general requirement, the code specifies

detailed requirements related to employment conditions. For

example, the use of child labour is absolutely unacceptable.

Workers must not be younger than the legal minimum age and not

less than 14 years. Wages must be comparable with local norms

and comply with local laws. Furthermore, the code requires that

suppliers make full disclosure to C&A of all facts concerning

production and the use of sub-contractors. The suppliers are

obliged to authorise [the auditors] to make un-announced

inspections of the manufacturing facility.

According to Graafland, C&A (in the above example) severed relationships with

suppliers that did not conform to the code.

6
C&A is a brand name

Page 21 of 32
Another possible way for a powerful firm to positively influence less powerful firms in

its network is to serve as a role model to others through its ethical organisational

culture. According to McIntyre (1984), virtue is lived and not acted since one does

not offer what one does not possess (nemo dat quod non habet). In this regard,

Drumwright (1994) asserts that the success of socially responsible buying is to a

large extent dependent on the organisational context within which the policies are

made. In other words, to be able to influence the suppliers effectively the purchasing

firm should exhibit high level of ethical orientation that is permeated in its culture.

Culture is to an organisation what personality is to an individual. It is that distinctive

formation of beliefs, values, work styles, and relationships (visible/invisible,

said/unsaid) that distinguish one organisation from another (Schein, 1985:9).

However, as there is abnormal personality, there is also supposed to be bad

organisational culture. But what determines a good or bad culture? In our opinion, a

good organisational culture is one that embodies these ethical dimensions of virtue,

rights, justice, and utilitarianism. The presence or absence of these ethical

dimensions determines the organisation‘s ability to base its decisions, policies,

systems and processes on what is good and what is right (what ought to be) for its

own sake (i.e. for the good of the society at large). This way, the purchasing firm will

effectively serve as a role model to supplying firms for others to mimic. And theory

confirms that firms have very high tendency to mimic each other, especially

successful ones (Powell and DiMaggio, 1991).

A possible third option for a powerful firm to influence its supply chain is through

personal training and value orientation. Crane and Matten (2004) distinguish two

Page 22 of 32
sets of ethical issues that arise in business-supplier relationship, viz. organisational

level issues and individual level issues. At the organisational level are such issues as

misuse of power, the question of loyalty, conflicts of interests and preferential

treatments. At the individual levels are such issues as bribery, unethical negotiation

and other personal factors. While some of the organisational issues can be

addressed through the organisational culture, the individual level issues can be

influenced through personnel training in ethics and values. The purchasing firm can

go a step further to extend this sort of training programmes to the staff of their

suppliers in order to minimise the rate of value frictions at the point of transaction.

That way, both firm and suppliers will enjoy more lasting relationship and earn higher

social capital base.

Conclusion

With the emergence of supranational economic ideologies in the West, under the

auspices of globalisation, the dream of a deregulated global economic space is

becoming a reality. Hence, MNCs rival existing nation-states in the control of

economic resources in the world. In this sense, MNCs are legitimate agents of

justice and injustice, and therefore liable to the same international principles

governing economic and social corporations among states. However, multinational

corporations often operate under intricate economic, social and legal conditions

within the territories of their subsidiary firms. Complex business laws and business

structures differ from country to country, undermining the applicability of any

emergent universal, moral-economic principles. These prevalent conditions, critics

Page 23 of 32
say, often allow multinationals the free moral space to maximize profits and trump

existing ethical obligations.

We acknowledge that the aim of the paper, as demonstrated, raises some moral

issues. Some pertinent questions that keep resonating beyond our collective

academic exercise, are: why limit the scope of responsibility of MNCs? Does limiting

their scope of responsibility make CSR more effective along the supply chain or does

it create a larger, free moral space for MNCs to perpetrate irresponsible acts? While

these questions are important, it is not surprising that the global firms are currently

under pressure more than ever to rescue their brands from possible charges of

misconducts along their supply chain. The pressure groups understand this

pressure and try to make the best use of it. It may not be surprising, also, to learn

that sometimes, the pressure groups use these opportunities to promote their

agenda (e.g. the case of Shell and Greenpeace is well documented in the business

ethics literature7.

Although Emmelhainz and Adams (1999) argue that the shift towards global supply

and competition comes with extended chain of responsibility on the part of individual

firms, it will be theoretically inappropriate to hold any particular firm responsible for

the practice of another firm; unless it is established that the action of one firm

consequentially leads to the action of another particularly where the relationship is

not at arms-length (e.g. through the concepts of control and corporate grouping as

earlier discussed in the paper). However, since firms are rational and free entities,

this consequential link of actions and responsibilities will be more sensible where

7
For example see: Bowie and Dunfee ( 2002) and Zyglidopoulos (2002).

Page 24 of 32
there is an obvious misuse of power on either of the parties involved. If not, it is our

opinion that each firm should bear responsibilities for its actions, albeit those in

position of power have the deontological duty to use power responsibly and the

obligation to positively influence the weaker parties possibly by setting standards,

serving as role models, anti-pressure group campaigns and through personnel

training and value orientation.

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